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Food Franchise Industry Report 2014: Investing in a Food Franchise

Important Note: The provisions and fees illustrated in this report are only the most common and not a complete listing. Please review the Franchise Disclosure Document (FDD) for all of the provisions and fees related to investing in a specific franchise.

There are several factors to consider when researching and evaluating potential franchises. Of those factors, we have chosen a couple to highlight. Sample investment figures from a combination of the mentioned segments are also provided below.

Importance of Location

Because of the high level of competition, the success of food franchises is greatly impacted by location. Poorly located franchises in an area that cannot sustain business will suffer even if the service and food offered are superb.

Some food franchises will offer the franchisee a choice between a traditional or non-traditional location. A traditional location usually stands in isolation and doesn’t involve the usage of a third-party business space (unless that business is associated with the franchise concept through the franchisor or parent company). Non-traditional locations are typically situated within a third-party property in various sites, including:

Food location

  • Shopping Malls
  • Convenience Stores
  • Airports
  • Travel Plazas
  • College Campuses
  • Military Bases

All franchisors will approve the franchisee’s site before the opening process begins. Some franchisors help in the selection of a site by designating parameters from within which a location must be selected or by assigning professional real estate support. In choosing a location, prospective franchisees should be aware of vehicle and foot traffic patterns as well as ease of access, with the goal of finding a site that would maximize exposure of their fast food outlet to potential customers.

Additionally, a great location can act as an excellent marketing initiative for potential customers. During site selection, an experienced franchisor is an invaluable resource with dependable knowledge of the kind of market and demographics that will keep the concept thriving.

 

The Costs of Running a Franchise

When many prospective franchisees first consider opening a franchise, their main concern is often the financial aspect. The investment can be separated into two parts: initial investment and ongoing fees.

Initial Investment

Investment costs vary for different franchises depending on the particular business system and execution requirements. The following charts demonstrate, by comparison, initial costs associated with opening one of the sample franchises presented. The franchises are grouped by food industry segment.

Estimated Initial Investment Range for Sample Bakery Franchises

 

Auntie Anne's

 

Cinnabon

 

Corner Bakery Café

 

Dunkin'Donuts

 

Panera Bread


Estimated Initial Investment Range for Sample Coffee Franchises

 

Coffee Beanery

 

Dunn Brothers Coffee

 

Maui Wowi

 

Scooter's Coffee

 

Tim Hortons


Estimated Initial Investment Range for Sample Fast Food Franchises

 

Arby's

 

Chick-fil-A

 

McDonald's

 

Subway

 

Taco Bell


Estimated Initial Investment Range for Sample Full Service Franchises

 

Denny's

 

IHOP

 

Saladworks

 

T.G.I. Friday's

 

The Melting Pot


Estimated Initial Investment Range for
Sample Ice Cream & Frozen Yogurt Franchises

Baskin Robbins Dairy Queen Menchie's Red Mango TCBY

Estimated Initial Investment Range for Sample Pizza Franchises

 

Domino's

Papa Murphy's Take 'N' Bake

 

Pizza Hut (Licensed Concepts)

 

Pizza Ranch

 

Toppers Pizza


Estimated Initial Investment Range for Sample Others Franchises

 

7 Eleven

 

Edible Arrangements

 

Fresh Healthy Vending

 

Jamba Juice

 

Smoothie King

Initial costs associated with opening a franchise include the franchise fee, training expenses (such as travel and living expenses, not the actual training courses), grand opening marketing costs, and more.

One major variable in the initial investment into a franchise is the cost of real estate. Please note that some franchisors do not include land or real estate costs in estimates because of the price variation between locations and whether their franchise system requires a new rather than leased building.

Ongoing Fees

Throughout the length of the agreement there are costs for being a part of the franchisor’s business system.

These costs include items such as royalty fees, charges for technical support and marketing costs. The most common is the royalty fee, taken from overall revenue, with examples below for a list of sample franchises.

Royalties for
Sample Bakery Franchises

7% of Net Sales
For Full Bakeries, 6.0% of Net Sales
5% of Gross Sales
5.9% of Gross Sales
5% of Net Sales
Auntie Anne's Cinnabon Corner Bakery Café Dunkin' Donuts Panera Bread

Royalties for
Sample Coffee Franchises

6% of the Gross Sales
5% of Gross Sales
Up to 6% of the Gross Revenue
6% of Gross Sales
4.5% to 6% of Gross Sales
Coffee Beanery Dunn Brothers Coffee Maui Wowi Scooter's Coffee Tim Hortons

Royalties for
Sample Fast Food Franchises

4% of Total Gross Sales
N/A
4% of Gross Sales
8% of Total Gross Sales
5.5% of the Unit's Gross Sales
Arby's Chick-fil-A McDonald's Subway Taco Bell

Royalties for
Sample Full Service Franchises

4% of Gross Sales
4.5% of Total Gross Sales
5% of Total Net Sales
7% of Gross Sales
4.5% of Monthly Gross Revenues
Denny's IHOP Saladworks T.G.I. Friday's The Melting Pot

Royalties for Sample
Ice Cream & Frozen Yogurt
Franchises

5.9% of Gross Sales
5% of Gross Sales
6% of Gross Sales
6% of Gross Revenue for a Traditional Café Store
6% of Monthly Gross Revenues
Baskin Robbins Dairy Queen Menchie's Red Mango TCBY

Royalties for
Sample Pizza Franchises

5.5% of Store's Weekly Royalty Sales
5% of weekly Net Sales
10%
Greater of $500 or3.5% of Gross Revenues
5.5% of Gross Sales
Domino's Papa Murphy's Take 'N' Bake Pizza Hut (Licensed Concepts) Pizza Ranch Toppers Pizza

Royalties for
Sample Others Franchises

Variable percentage of Gross Profit
5% of Business' Weekly Gross Sales
6% of the Monthly Gross Revenue
Between 5% and 6% of total Net Sales
4% to 6% of Gross Sales
7 Eleven Edible Arrangements Fresh Healthy Vending Jamba Juice Smoothie King

In addition to regularly assessed fees, other fees are charged on an “as needed” basis such as audit fees or costs for additional training. Prior to investing, prospective franchisees should do their research and carefully review a franchisor’s FDD for more detailed information on all systems, procedures and costs.

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Catering Franchises...

French Fry Heaven Divinely inspired! Completely original concept, proven track record, designed for profit! Read More Min. Cash Required:
$100,000.

Camille’s Sidewalk Cafe Camille’s franchising system is a step-by-step method for developing your own restaurant. We'll show you how! Read More Min. Cash Required:
$40,000.

California Tortilla California Tortilla has redefined the fast-casual Mexican food segment. This is the franchise recipe you’ve been... Read More Min. Cash Required:
$250,000.


Kono Pizza Shake up the pizza market with the pizza cone! It's healthy, fresh and perfect for on-the-go eating. Read More Min. Cash Required:
$75,000.

Toppers Pizza Think we're like everyone else? We're true pizza people. We know who our customer is! Read More Min. Cash Required:
$150,000.

Jimmy John's One of the fastest growing franchises in the U.S., Jimmy John’s has been serving fresh, fast, tasty sandwiches... Read More Min. Cash Required:
$80,000.



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